Introduction to OM

References
Book Author Publisher
1. Operations Management Roger Schroeder McGraw Hill
2. Operations Management-Processes Lee Krajewski and Prentice Hall
and Value Chains Larry Ritzman
3. Operations Management B. Mahadevan
4. Production and Operations S.N. Chary
Management
5. Production and Operations Chase, Acquino and TMH
Management Ravi Shankar
6. Schaum’s Outline of Operations Joseph Monks TMH
Management
7. Supply Chain Management Janat Shah Pearson
What Is Operations
Management?
Production is the creation of goods and
services
Operations management (OM) is the set of
activities that creates value in the form of
goods ,services and information by
transforming inputs into outputs
OM is one of three major functions
(marketing, finance, and operations) of any
organization
Operations management is defined as the design, operation and
improvement of the system that creates and delivers the primary
product and services.
Three perspectives of OM
 Operations as a transformation process
 Operations as a basic function
 Operations as the technical core
What is Operations Management?

 Operations management is the process an organization uses to:

Obtain the materials or ideas for the product it provides.
Transform the materials or ideas into the product.
Provide the final product to a user.
 The operations function
Consists of all activities directly related to producing goods or
providing services
Performance=speed x quality x flexibility
The Operations Management Process

Outputs

Raw materials Facility Goods

Labor Capacity Services
Energy Process Information
Knowledge Control
 Value-Added
Figure 1.2
The difference between the cost of inputs
and the value or price of outputs.
 Transformation Examples
Methods
1 Physical Manufacturing

2 Location Transportation

3 Exchange Retailing

4 Storage Warehousing

5 Physiological Health care

6 Informational Telecommunication, Education,

Software Development
System Primary Inputs Resources Primary Typical
Transformation Desired
Functions Output
Automobile Steel Raw M/C, tools, Fabrication and High quality
Factory Materuial equipments,ener assembly of cars cars
sheet,engine gy,fuel (Physical)
subassembly worker
College High school Teachers, Imparting Educated and
students classrooms,book knowledge/skill skilled
s,internet (Informational) Individuals

Hospital patients Doctors,Nurses, Health Care Healthy

medical supplies (phyisological) individuals
,equipments

Airline travelers Airplanes, crew, Move to On time,safe

destination delivery to
(transport) destination
 Types of Operations

Operations Examples
Goods Producing Farming, mining, construction ,
manufacturing, power generation
Storage/TransportationWarehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
 Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Hospital Process
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
 Simple Product Supply Chain
Figre 1.7

Supply Chain: A sequence of activities and organizations

involved in producing and delivering a good or service
 A Supply Chain for Bread

Stage of Production Value Value of

Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
 21.5

Core Positioning Strategies

Continuous
process Product focus
(stable)
Auto assembly
Resource flows
Mass plant
production
Intermediate Mail processing
Garment
Large industry
batch
Process focus
Branch banks
Space shuttle
Legal practice
Sporadic
(unstable)
Custom products, Mixture of custom and Standard products,
low volume standard products, moderate high volume
volume
Product volume
 Operations Management
Figure 1.1

The management of systems or processes

that create goods and/or provide services
 Business Operations Overlap
Figure 1.5
Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer interaction
Characteristics of Service
 Intangible product
 Produced and consumed at same
time
 Often unique
 High customer interaction
 Inconsistent product definition
 Often knowledge-based
 Frequently dispersed
Goods and Services

Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

Figure 1.4
Goods-service Continuum
Differences Between Services and
Goods
 Information Asymmetry
 Intangible
 Inventory-Production and delivery
 Customer Contact
 Response Time
 Labor Intensity
 Uniformity of input and output
 Measurement of productivity
 Quality assurance
Improving Responsiveness to Customers

 Without customers, organizations cease to exist.

Non-profit and for-profit firms all have customers.
Managers need to identify who the customer is and their needs.
 What do customers want? Usually customers prefer:
A lower price to a higher price.
High quality over low quality.
Fast service over slow service.
 Also good after sale support.

Many features over few features.

Products tailored to their specific needs.
 21.7

Competitiveness Value Map

Higher Premium
Poor value
value

Relative Price
Average
value

Economy
value Outstanding
Source: Adapted from Gale,
value B.T., and Buzzell, R.D. “Market
perceived quality: Key strategic
Lower concept.” Planning
Review, March-April, 1989, 10.
Inferior Superior
Relative Quality

Adapted from Figure 21.3

 21.5

Core Positioning Strategies

Continuous
process Product focus
(stable)
Auto assembly
Resource flows
Mass plant
production
Intermediate Mail processing
Garment
Large industry
batch
Process focus
Branch banks
Space shuttle
Legal practice
Sporadic
(unstable)
Custom products,
Mixture of custom and standard Standard products,
low volume products, moderate volume high volume
Product volume
 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management Figure 1.1(B)
science
 Manufacturing

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply chain management research
Funds Management
Manufacturing
Tooling; fabrication; assembly Money market
International
Design exchange
Product development and design
Detailed product specifications Capital
Industrial engineering requirements
Efficient use of machines, space, Stock issue
and personnel Bond issue
Process analysis and recall
Development and installation of
production tools and equipment
Historical Evolution of Operations Management

Table 1.7
 Industrial revolution (1770’s)
 Scientific management (1911)
Mass production
Interchangeable parts
Division of labor
 Human relations movement (1920-60)
 Decision models (1915, 1960-70’s)
 Influence of Japanese manufacturers
Significant Events in OM
The Heritage of OM

 Division of labor (Adam Smith 1776; Charles Babbage

1852)
 Standardized parts (Whitney 1800)
 Scientific Management (Taylor 1881)
 Coordinated assembly line (Ford/ Sorenson 1913)
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth 1922)
 Quality control (Shewhart 1924; Deming 1950)
The Heritage of OM

 Computer (Atanasoff 1938)

 CPM/PERT (DuPont 1957)
 Material requirements planning (Orlicky 1960)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 Baldrige Quality Awards (1980)
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Internet (1995)
 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain partnering
 Rapid product
 Lengthy product development, alliances
development
 Mass customization
 Empowered employees,
 Standard products
teams

 Job specialization
 New Trends in OM
Past Causes Future

Local or Reliable worldwide Global focus,

national focus communication and moving
transportation networks production
offshore
Batch (large) Short product life cycles and Just-in-time
shipments cost of capital put pressure on performance
reducing inventory

Low-bid Supply chain competition Supply chain

purchasing requires that suppliers be partners,
engaged in a focus on the end collaboration,
customer alliances,
outsourcing

Figure 1.6
 New Trends in OM
Past Causes Future

Lengthy product Shorter life cycles, Internet, Rapid product

development rapid international development,
communication, computer-aided alliances,
design, and international collaborative
collaboration designs
Standardized Affluence and worldwide Mass
products markets; increasingly flexible customization with
production processes added emphasis on
quality
Job Changing socioculture milieu; Empowered
specialization increasingly a knowledge and employees, teams,
information society and lean
production

Figure 1.6
 New Trends in OM
Past Causes Future

Low-cost Environmental issues, ISO Environmentally

focus 14000, increasing disposal costs sensitive production,
green manufacturing,
recycled materials,
remanufacturing

Ethics not at Businesses operate more openly; High ethical

forefront public and global review of standards and social
ethics; opposition to child labor, responsibility
bribery, pollution expected

Figure 1.6
Responsibilities of Operations Management
Table 1.6

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
 Decision Making

System Design
– capacity
– location
– arrangement of departments
– product and service planning
– acquisition and placement of
equipment
 Decision Making

System operation
– personnel
– inventory
– scheduling
– project
management
– quality assurance
Decision Making

Models
Quantitative approaches
Analysis of trade-offs
Systems approach
 Models

A model is an abstraction of reality.

– Physical
– Schematic
– Mathematical Tradeoffs

What are the pros and cons of models?

Models Are Beneficial

 Easy to use, less expensive

 Require users to organize
 Systematic approach to problem solving
 Increase understanding of the problem
 Enable “what if” questions
 Specific objectives
 Consistent tool
 Power of mathematics
 Standardized format
 Quantitative Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
 Pareto Phenomenon

•A few factors account for a high

percentage of the occurrence of
some event(s).
•80/20 Rule - 80% of problems are
caused by 20% of the activities.
Operations Management Concepts

Quality: goods and services that are reliable and perform

correctly.
 Quality allows customers to receive the performance that they expect.

Efficiency: the amount of input to produce a given output.

 Less input required lowers cost and waste.

Responsiveness to customers: actions taken to respond to

customer needs.
 Firm can react quickly and correctly to customer needs as they arise.
 Scope of Operations Management
 Operations Management includes:
 Forecasting
 Capacity planning
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities

 And more . ..
Trends in Business

 Major trends
 The Internet, e-commerce, e-business
 Management technology
 Globalization
 Management of supply chains
 Agility
Other Important Trends
 Ethical behavior
 Operations strategy
 Working with fewer resources
 Cost control and productivity
 Quality and process improvement
 Increased regulation and product liability
 Lean production
Flexibility

 Product Flexibility-speed with which products are created, ability to

customize, ability to modify products for special needs
 Volume Flexibility-ability to respond to sudden changes in demand,
change from small to full scale
 Process Flexibility-ability to manufacture a variety of goods in a short
time, adjust to product mix over time, ability to accommodate changes in
raw materials
 21.5

Core Positioning Strategies

Continuous
process Product focus
(stable)
Auto assembly
Resource flows
Mass plant
production
Intermediate Mail processing
Garment
Large industry
batch
Process focus
Branch banks
Space shuttle
Legal practice
Sporadic
(unstable)
Custom products,
Mixture of custom and standard Standard products,
low volume products, moderate volume high volume
Product volume
 21.7

Competitiveness Value Map

Higher Premium
Poor value
value

Relative Price
Average
value

Economy
value Outstanding
Source: Adapted from Gale,
value B.T., and Buzzell, R.D. “Market
perceived quality: Key strategic
Lower concept.” Planning
Review, March-April, 1989, 10.
Inferior Superior
Relative Quality

Adapted from Figure 21.3


Total Versus Traditional Quality
Total Quality Management
 Quality is a strategic issue
 Plan for quality
 Quality is everybody’s responsibility
 Strive for zero defects
 Quality means conformance to
requirements that meet or exceed
customers’ expectations
 Scrap and reworking are only a small
part of the costs of nonconformance
21.11
Traditional Quality Control
 Quality is a tactical issue
 Screen for quality
 Quality is the responsibility of the
quality control department
 Some mistakes are inevitable
 Quality means inspection
 Scrap and reworking are the major
costs of poor quality
 21.4

Nine Categories of Operations Management Decisions

 Product plans
 Competitive Priorities
 Positioning Strategies
 Location
 Technological Choices
 Quality management and control
 Inventory management and control
 Materials Management
 Master production scheduling
Productivity Challenge

Productivity is the ratio of outputs (goods

and services) divided by the inputs
(resources such as labor and capital)

The objective is to improve productivity!

Important Note!
Production is a measure of output only and not
a measure of efficiency
Productivity Variables

 Labor - contributes
about 10% of the
annual increase
 Capital - contributes
about 38% of the
annual increase
 Management -
contributes about 52%
of the annual increase